Manage for Success: Fairness, Newsletter #85, May 2008


"Manage for Success" is a free monthly newsletter for record label executives who want to operate their companies efficiently and successfully. It's published by Keith Holzman of Solutions Unlimited, a management consultant, troubleshooter, and trusted advisor, and is based on his many years as a senior executive in the music industry.


Copyright 2008 by Keith Holzman, Solutions Unlimited. All rights reserved.


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Some fascinating and frankly rather scary numbers have just been published by Nielsen SoundScan that are well worth analyzing.


* 450,344 of the 570,000 albums that sold at least one copy in 2007 were actually purchased less than 100 times, and fewer than 1000 albums accounted for over half of all album sales.


* New releases that sold 25,000 or more (950 titles) accounted for 153 million sales, or 82% of all new releases.


* 37% of all album sales were from titles released in 2007 (the lowest total of new release sales since the beginning of SoundScan.


* Sales of CDs are down 31% since 2004 and are now back at 1996 sales totals, while digital sales are up 490%.


* 80,000 albums were released last year, an increase of 5000 titles.


* Although 844 million digital tracks were sold last year, 1% of them accounted for 80%

of all tracks sold.


* So far this year, nearly one out of every four albums purchased in the U.S. happens either through a digital service, Internet retailer, through the mail, at a "non-traditional retail store," or at a concert.


There's a tremendous amount of useful information available so I urge all of you to download the survey:

<http://narm.com/2008Conv/StateoftheIndustry.pdf >.


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I recently received an email from Matt Hardy of Slow Train Records in Edinburgh, Scotland <http://www.slowtrainrecords.co.uk > who writes:


"I am interested to hear your thoughts and ideas regarding a label such as my own. I am working with a number of acts who record their own material (at their own cost). I agree to market the material, manufacture the CDs & distribute them (primarily on-line)....What are your thoughts re mechanical ownership of the songs, profit sharing, contracts etc. I want to be fair to the artists but also able to make some financial returns and protect the hard work and investment that goes in from my side -- without tying them to what is really nothing more than a one man operation."


Mr. Hardy's label and methodology have become fairly common during the last few years as more and more people are risking entry into this increasingly precarious business. Such persons generally mix a strong entrepreneurial bent and a great love for music with a desire to help get it out to an ever-ravenous audience.


But these good souls are usually poorly funded, and whatever limited financial resources they have need to be spread as widely as possible. Thus they come up with varying, sometimes complex, methodologies to help struggling artists get their music disseminated.


One frequent approach is similar to a joint venture type of deal wherein the artist pays all recording costs, the label pays for printing, manufacturing, and marketing, and profits are shared -- typically on a 50/50 basis after all expenses are paid. Sometimes the profit share is based on the ratio of monies and/or expenses that are put up by each party.


In other circumstances an artist will simply license the masters to a label for a specified period of time, and receive remuneration typically in the form of a royalty based on units or downloads sold.


But how might these entities deal with other sources of potential income such as licensing to films, TV, or commercials? What about publishing ownership and income if the artist writes some or all of the recorded material? Artist touring and merchandising income is now sometimes being shared with labels along with money from sponsorship and underwriting. How would such a venture deal with splitting that? To be continued after the following.


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Label owners and executives have to deal with a great many problems other than deciding on what's a fair deal for their artists. Contact me if you're one of those managers having trouble coping with running your company. I've had many years of record industry experience at labels large and small, and have solved many such problems. Let me help you as I've helped so many other labels "manage for success." My email address is <keith@holzmansolutions.com>.


And if you're an artist or budding music-loving entrepreneur thinking of starting your own label, take a look at "The Complete Guide to Starting a Record Company," available as an eBook in PDF form, or as a printed, spiral-bound volume. Read the complete Table of Contents and download the Introduction at <http://www.recordcompanystartup.com/>.


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Resuming my reply to Mr. Hardy, I suggest that all ancillary income be split equitably, either 50/50, or in the same ratio as agreed upon for CD and download sales.


As regards publishing, I think the label should become a co-publisher owning half of the typical publisher share, with the artist/writer -- also as co-publisher -- owning the remaining half of the publisher share, but keeping all of their writers' share. Therefore, the whole publishing pie is divided so that the artist/writer ultimately gets 75% of all publishing income, and the label 25%.


International rights need to be agreed upon. In some cases an artist may already have an established audience in other countries and may therefore have an edge getting distribution in such territories. More frequently, the label will have built substantial relationships with foreign distributors, and may be in a better position to properly exploit the artists' music.


As to income from artist touring, I believe that should remain with the artist, unless the label has put up funds to help defray touring expenses. In that event, the label should have its expenses reimbursed once the tour develops black ink.


One item of significant concern is ownership of masters. Oftentimes a label requires such ownership, and occasionally it's decided on the basis of who has contributed what. Whatever is ultimately agreed on, it's my feeling that in almost all cases masters should revert to artists on the demise of their label. I've known of quite a few incidents where a label went out of business and the masters and their ownership fell into limbo.


In any event, and despite the best intentions of all persons involved, problems and disputes can occur. Therefore it's vital that the relationship between label and artist be memorialized by some form of a binding legal agreement. This contract should be drafted by a qualified attorney who is completely up to date on current recording industry practice, with an eye to seeing that responsibilities of all parties are clearly defined, and how all matters -- financial and otherwise -- are to be settled. It's also important that ownership of masters is clearly stated in the agreement.


As for how such relationships may differ between U.S. practice and that in other countries, I shouldn't imagine that there would be much difference.


The bottom line is that relationships between artist and label need to be built on common trust and common welfare since you'll hopefully be working together for a substantial period of time. In short, I recommend that labels be fair.


Until next month,

Keith Holzman -- Solutions Unlimited

Helping Record Labels Manage for Success.


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Copyright 2008 by Keith Holzman, Solutions Unlimited. All rights reserved.